By Michael Pettis
In October two Chinese academics presented research proposing that China’s National Bureau of Statistics under-reports the Chinese household consumption share of GDP, officially at 36 per cent, by ten to twelve percentage points. There have been other studies suggesting that consumption is understated in the official data (although by much lower amounts). Analysts who still doubt China’s need for significant economic reform have often claimed that consumption in China is much higher than the official data reports. These upward revisions show, they argue, that the consumption imbalance in China’s economy is not as bad as is often supposed, and so will not require a sharp slowdown in economic growth as China rebalances its economy.
There are at least three reasons to be sceptical about this argument. Continue reading »
By Ken Peng of Citi Private Bank
China must rebalance! Yes, everyone from President Barack Obama to your average Beijing taxi driver knows that. Around 48 per cent of China’s GDP is investment, just 36 per cent is household consumption, with government spending a bloated 13 per cent and net exports, 2 per cent. Whether through timely and painful reforms now or delayed reforms and disaster later, investment growth is expected to falter and consumption to be unable to pick up the slack.
But what if these basic assumptions are wrong? Continue reading »
China’s reform plan released after the Communist Party’s Third Plenum has been hailed as ambitious and bold. It certainly has far more in it than just the one-child policy reform and abolishment of labour camps. Here is beyondbrics’ summary of the plan, grouped by category. Continue reading »
By Shaomin Li of Old Dominion University
A quarter of a century ago in 1988, China’s one-child policy was in full swing and some side-effects had begun to show. Concerned about it, I wrote my doctoral dissertation examining this policy under the guidance of late professors Ansley Coale and Norman Ryder at Princeton, both founding fathers of demography as a scientific study. I was among the first to point out the major flaws of the policy, and my view then was regarded as quite heretic: I proposed an alternative two-child policy that could achieve the same population control goal as the one-child policy.
Needless to say, the Chinese government did not listen to me; now many of the social problems associated with the policy we worried about then have come to pass. It now seems the policy will be eased.
Twenty five years later, the findings and policy recommendations in my dissertation are still relevant and worth re-capping. Continue reading »
China’s exports hit a positive note just ahead of the big party meeting, aka the plenum. As the FT reported, the 5.6 per cent year-on-year increase in exports in October was higher than market expectations of a 3.2 per cent rise.
But the numbers are actually better than the top line. Here’s why. Continue reading »
By Anthony Chan of AllianceBernstein
Expectations are high that President Xi Jinping and Premier Li Keqiang, nearly one year into their likely 10-year reign,will unveil reform policies that will define China’s social and economic development over the next decade and beyond. After the proposals are made public, the new leaders must prove that they can implement substantial change without derailing the growth of the world’s second-largest economy.
In our view, the announcements expected at the Third Plenary Session of the 18th Communist Party Central Committee meeting on November 9–11 may be as historically significant as those made at a similar session in 1993, when Deng Xiaoping, then party leader, launched the “socialist market economy” campaign. Continue reading »
Predicting the outcome of any Chinese political meeting is a fool’s errand. However, investors are already trying to weed through the possible winners and losers from a whole host of possible reform measures that could come out of China’s Third Plenary Session – aka the plenum – which opens this weekend .
Here is a roundup of ten sectors in the spotlight. Continue reading »
By Zhang Zhi Ming of HSBC
Thirty years of reforms have given local governments in China unprecedented authority, including widespread powers over land sales, infrastructure, commercial and residential property construction, natural resources and foreign direct investment. With limited supervision, it is their foot rather than Beijing’s that has been firmly on the accelerator of the country’s remarkable growth engine.
We argue that the pendulum has swung too far in one direction, especially now that the old growth model is starting to run out of steam. Continue reading »
By William Rhodes
It is likely that the “The Third Plenum of the 18th Chinese Communist Party Congress,” which takes place in mid-November, will set the government’s economic policy course for the next five to 10 years. The path ahead will see domestic consumption and substantial financial innovation and liberalisation replacing the emphasis on exporting, and heavy public sector investment, as the prime drivers of growth.
The road that President Xi Jenping and Premier Li Keqiang are embarked upon may involve the most far-reaching economic reforms since former leader Deng Xiaoping made his famous 1992 Shenzhen speech. Continue reading »
By Jonathan Geldart of Grant Thornton
“People misunderstand China. Usually they have an opinion on one extreme or the other. Some demonise. Others mythologise. Both perceptions are limited and distorted. China is neither as terrible and chaotic as some allege, or as great as others assert. The reality is in the middle.”
So said He Fulong, chairman of ITG Group. Based in Xiamen in southeast China, ITG is one of the country’s largest diversified trading companies. It is typical of the local state owned enterprises that have provided the solid underpinning of China’s phenomenal growth since the period of opening and reform from 1978 under Deng Xiaoping. Continue reading »
Liu Li-Gang, ANZ’s chief China economist, talks to the FT’s Josh Noble about China’s reliance on investment over consumption, and the prospects for reform and rebalancing of the economy.
China’s State Council this week set out a five year plan to tackle its long standing overcapacity problem. It’s another message the new government wants to get out before the awaited party meeting in November, when more economic reforms are expected.
The State Council released on Tuesday “Guidelines to Resolve Severe Overcapacity Problems” on its webpage. The five sectors targeted are steel, cement, electrolytic aluminium, sheet glass and shipping. New projects will be blocked and current projects may be reappraised. Continue reading »
By Leslie Young of the Cheung Kong Graduate School of Business
On Friday, China will release its third quarter GDP figures to wide scrutiny, given the country’s impact on the world economy. But what might be overlooked by the focus on GDP growth?
Additional insights can be found in the data for the growth of Gross National Income (GNI), which augments GDP by producer taxes and the net income paid to nationals. Continue reading »
What’s the bigger risk for emerging Asia, the US tapering its QE programme, or the fall-out from years of over-investment in China? In the World Bank’s East Asia And Pacific Economic Update, they get a chapter each in a section titled “Selected Emerging Issues”, which could be better titled “what we should be worried about”.
And the conclusion? Continue reading »
Or, when China sneezes…
China can’t go on growing at over 7 or 8 per cent forever. But as the world’s second biggest economy starts to slow, what will be the effect on the other developing economies of Asia? The Asian Development Bank has issued an update to its economic outlook, and aside from the predictable lowered forecast to headline growth, it spells out some of the knock-on effects of China’s slowing growth to the rest of the region. Continue reading »